Income Portfolio – Still Selling in May and Going Away
by Phil - April 14th, 2012 5:27 am
Last month, we decided we were going to sell in May and go away in our special update (regular update was here).
We had turned bearish on the market by the 12th, perhaps a little early but it gave us plenty of time to make good exits and get our prices. Since our Income Portfolio was running 100% ahead of schedule and more like 250% counting the unrealized gains from our buy/writes as the market zoomed higher on us, we decided it would be good to go back to cash – especially as it would be fun to build a brand new Income Portfolio for 2012 that our newer Members will be able to benefit from following as well as it is, by far, our most popular virtual portfolio.
We're not cashing it all out as some positions still need to run their courses, but we won't be upset to be cashed out on some so we covered conservatively in anticipation of the pullback that just began last week. We had $97,716 in realized (albeit virtual) gains as of our March 10th update – not bad after 10 months with a $500K portfolio that was only looking to take out $4,000 a month!
This is the kind of set-up that my Mom and many of her friends need to do to supplement their not very generous Social Security checks but it's also using the same principle that applies to any long-term wealth-building strategy, utilizing our best long-term growth strategies combined with a concentration on generating an income collecting dividends and selling short-term options to create our own "dividend" stream on ordinary stocks. Please see previous posts in our Virtual Portfolio section for our main strategy discussions – this is just an update.
This month was unusual as we had quite a few action items, mostly per the Special Update, the following positions were closed:
- 10 GE Jan $17.50 puts sold for $2.10, closed at now $1.30 – up $800
- 20 RIMM 2014 $22 puts at net $3.52, closed at $10.10 – down $13,160
- 3,000 NLY .55 dividend paid on 3/28 – up $1,650
- 10 TITN March $22.50 puts sold for $4.50, expired worthless – up $4,500
- 1,500 NYB at net $8.70, out at $10 – up $1,950
- 10 TM Jan $62.50 calls bought for $6.50 ($6,500), out at $23.20 – up $16,700
- 1,000 CSCO .08
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DiggIncome Portfolio Moves – Selling in May and Going Away
by Phil - March 11th, 2012 6:32 am
Now that I've slept on it, I want to raise cash.
As I mentioned in yesterday's update, we are very bullish, perhaps too bullish in our Income Portfolio and we are also 100% ahead of schedule and more like 250% counting the gains from our buy/writes, some of which are well in the money. Since we aren't thrilled with the overall economic picture and, since we're supposed to be learning new techniques and, since I think it's time to start a fresh Income Portfolio anyway, let's go through our positions and learn how to sell in May and go away with style.
We're not purposely cashing it all out but we won't be upset to be cashed out on some – and I'm sure you'll see why. I'm going to comment on every position with red highlights for action items, we'll start with our short puts:
- 20 HCBK July $9 puts sold for $1.45 (-$2,900), now $2.10 – down $1,300
- 1,000 HCBK at net $6.83, now $6.79 – .08 dividend expected 5/8 ($80)
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- HCBK is now $6.79 and we essentially own them for $9. They pay a .32 dividend and we already have 1,000 shares uncovered so let's sell 20 July $7 calls for .30 ($600). If we're over $7, then we lose our current 1,000 shares (but get paid $7) and we'll have 10 short calls to roll into July, where anything between $7 and $9 is an improvement to our current short puts.
10 GE Jan $17.50 puts sold for $2.10 (-$2,100), now $1.38 – up $720
- I don't see GE popping $20 very easily but let's cash these puts in and sell 15 April $19 puts and calls for .99 to raise $1,485 that will expire in April. As we're willing to own GE long-term, either being forced to roll the puts or forced to buy stock to cover (with $2,195 already in our pocket) is
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Income Portfolio March Update – EZ Money!
by Phil - March 10th, 2012 4:46 am
Who says we're not bullish?
It's interesting how many people think we're bearish just because we talk about the problems in the economy and just because we don't buy into the market hype. Yes, short-term, we expect a correction and so far – so wrong on that one but, long-term, I don't think we have ANY bearish plays and our largest portfolio, our virtual income portfolio, is 100% bullish (with hedges) and has been since day one.
As of Friday, our $25,000 Portfolio was down $7,500 for the year. That's not good but that portfolio is supposed to be the aggressive carve-out of a more conservative $250,000-$500,000 portfolio like our income portfolio, which is long-term bullish and doing extremely well. How well? Up $73,792 in our first 9 months is an average of $8,199 per month generated off a conservatively invested $500,000 and double our goal of pulling a $4,000 monthly income without digging into our principal.
This is the kind of set-up that my Mom and many of her friends need to do to supplement their not very generous Social Security checks but it's also using the same principle that applies to any long-term wealth-building strategy, utilizing our best long-term growth strategies combined with a concentration on generating an income collecting dividends and selling short-term options to create our own "dividend" stream on ordinary stocks. Please see previous posts in our Virtual Portfolio section for our main strategy discussions – this is just an update.
Prior to making our moves, we had $87,042 of realized gains (positions we had cashed in) against $13,250 of unrealized losses for a $73,792 net gain in our 9th month so averaging a bit better than $8,000 a month and, as I said above, well ahead of schedule. The following positions were closed since then:
- 20 DIA Feb $120 puts sold for $1.60, expired worthless – up $3,200
- 20 SDS Feb $18 calls sold for .98, expired worthless – up $1,960
- 2,000 shares of AGNC paid a $1.25 dividend on 3/5 – up $2,500
- 3,000 shares of FTR paid a .10 dividend on 3/7 – up $300
- 1,000 shares of HCBK paid a .08 dividend on 3/8 – up $80
- 5,000 shares of SVU paid a .088 dividend on 2/28 – up $440
- 500 shares of MT paid a .188 dividend on 2/16 –
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Income Portfolio Feb Update – The Joy of Nothing
by Phil - February 4th, 2012 8:15 am
Nothing!
Not one move since expiration day and that's the way uh-huh, uh-huh we like it in our virtual retirement portfolio because, when we actually retire – who the hell wants to have to work – even when that job is simply pushing a couple of buttons on a computer screen once in a while? Our long-term outlook has been bullish since we began this portfolio last April and we did nothing when the S&P fell 300 points and we did nothing now that it's back up 300 points – to about where it was when we started.
Our goal here is to simply generate a monthly income of $4,000 using $500,000 invested without depleting the principal – the kind of thing that my Mom and many of her friends need to do to supplement their not very generous Social Security checks. Please see previous posts in our Virtual Portfolio section for our main strategy discussions – this is just an update.
Our last update was on January 12th and we finally had some work to do after taking 4 consecutive months off as we just laid back and collected our Q4 dividends but January had a lot of our short sold January positions coming due or paying off. We knew this was going to be our time for action as there really is no such thing as a free lunch – even the investing class has to roll out of bed and sit at a desk a couple of times a year!
Prior to making our moves, we had $80,617 of realized gains (positions we had cashed in) against $39,965 for a $40,652 net gain in our 8th month so averaging a bit better than $5,000 a month and well a head of schedule but this is the month we EXPECTED to do well in so we'll see how we made out. The following positions were closed:
- 1,000 shares of RRD paid a .26 dividend on 1/25 – up $260
- 1,500 shares of NYB paid a .25 dividend on 2/3 – up $375
- 4,000 shares of AA paid a .03 dividend on 2/1 – up $120
- 2,000 shares of F paid a .05 dividend on 1/27 – up $100
- 10 KFT Jan $30 puts sold for $1.60, expired worthless – up $1,600
- 10 EXC Jan $37.50 puts sold for $2.20, expired worthless
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Income Portfolio 2012 – Rolling Back to the Future
by Phil - January 12th, 2012 4:46 am
Behold the value of doing nothing!
Although we were worried last month, my comment to Members was "Don't Panic" as we had faith in our positions (not blind faith – we did go over each one!) and, as always, time was on our side as this portfolio is all about SELLING premium and collecting dividends.
Now, after literally doing nothing for 4 moths, it is finally time to make some adjustments as our January positions come due and require action. So time to end the 4-month vacation and start earning our money…
We initiated our virtual income Portfolio way back on April 9th, after dealing with my Father's death and speaking to many of my Mom's friends in Florida got me to thinking there must be a way to structure a portfolio that will hold up through thick and thin and throw off a nice monthly income – using a combination of dividends and option sales. Our goal was to put $500,000 to work and generate at least $4,000 a month in income without reducing the principal.
As you can see from the chart on the right, this is not exactly a radical strategy but, strangely, it's also not one that retirees seem to be aware of. Clearly, since 1990, the difference between dividend paying stocks and non-dividend paying stocks has made quite a difference. These days, with most stocks moving in very high correlation – that is truer than ever because – if they are all going to go the same way, then any dividends you collect are a bonus, right?
Of course, we try to outperform the S&P a bit as well and again, it's a no-brainer to use put option sales to improve your entries because, clearly, if you only enter a stock with a 15-20% discount, then again you are likely to outperform the rest of the index. The final trick up our sleeve is, of course, Fundamentals – we try to pick good stocks that will do better than the rest of the S&P.
And we HEDGE! We hedge because, EVEN THOUGH we picked a good stock and we will collect our dividends and even though we gave ourselves a discounted entry – WE STILL MIGHT BE WRONG! We might be wrong or the market may collapse (as it did on us just 3 years ago) in such a way that…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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